Labor’s NBN is a natural monopoly, but the Coalition’s is not

opinion The argument made by respected competition expert, academic and executive Fred Hilmer several weeks ago that the National Broadband Network is not a “natural monopoly” is somewhat convincing, but ultimately falls short by failing to acknowledge specific factors relevant to competition in the telecommunications sector.

One of the most common arguments made in favour of Labor’s previous, all-fibre National Broadband Network model right from the start of its development and indeed, consistently over the past decade, is that telecommunications infrastructure, like electricity cables, water, gas and sewerage pipes and even roads and rail, constitutes what is called a “natural monopoly”.

In short, or so the argument goes, there is no need for multiple, overlapping telecommunications networks because one is all that society needs. Just as each house and business premises in Australia only needs one electrical connection and one water pipe, so it should only need one telecommunications connection. Building multiple connections would appear to represent an inefficient use of society’s resources: Pure wastage.

This theory underpins everything that Labor’s NBN policy unveiled in April 2009 stands for. Its authors, led principally by then-Communications Minister Stephen Conroy, planned the NBN to be the fixed-line telecommunications network that would replace all other networks: Literally the ultimate platform which could never be superceded. Labor didn’t ignore the issue of competition, but it did shift the arena of competition, pushing it onto the retail broadband level, several layers about the infrastructure layer it has often sat at in the past.

Hilmer’s article published in the Financial Review newspaper on 28 April (paywalled) is one of the first thinkpieces I’ve seen published in Australia which successfully challenges this idea. In it, Hilmer argues that telecommunications does not constitute a natural monopoly situation, because other examples of such natural monopolies cannot be economically replicated by a competitor, while telecommunications infrastructure can.

Hilmer (pictured, right) argues that the only thing stopping competitors from overbuilding NBN Co’s infrastructure is not economics, as in a natural monopoly situation, but regulation. He refers to the fact that it was necessary for Labor to set up a complex regulatory regime, involving deals with both Telstra and Optus, as well as a specific contract between the competition regulator and NBN Co, and even supporting legislation, to ensure the dominance of the NBN infrastructure and block competition at the infrastructure level from challenging NBN Co’s supremacy.

And of course, Hilmer makes this argument at the perfect time.

As the UNSW vice-chancellor and former Fairfax chief executive points out, the whole idea of NBN Co as a natural monopolist is being challenged in the market right now, with rivals such as TPG threatening to cherry pick metropolitan residents who should be some of NBN Co’s natural customers. The reality of the situation, Hilmer argues, is that in keeping NBN Co’s model afloat, the Government is merely “cementing over cracks in the pavement”.

Now, to a certain extent Hilmer’s argument is extremely persuasive.

The commentator — who helped set up Australia’s competition policy in the early 1990’s — is right to be suspicious of applying the natural monopoly label to any company in the telecommunications industry. TPG’s actions right now — and the threats by fellow telcos Telstra, Optus and iiNet to follow its lead — do indeed demonstrate the threat that infrastructure-based competition poses to NBN Co’s financial viability. The nature of natural monopolies is such that they normally inherently deter such action.

Then too, a quick look at most developed economies will show any observer that this kind of infrastructure-based competition is the norm. Most residents of such countries typically enjoy a choice of telecommunications infrastructure, typically both copper-based broadband (ADSL) and HFC cable, sometimes with additional options such as with the Fibre to the Premises (FTTP) rollout that Google is expanding across the US. And mobile or wireless broadband has its role to play as well, although usually only at the low-end of the market.

However, Hilmer did make one critical mistake in his analysis which undercuts the narrative he is attempting to build around NBN Co as a flawed monopoly: He conflated the current Coalition Government’s broadband policy with Labor’s previous model.

Seasoned observers of Australia’s telecommunications industry will acknowledge that as long as Labor held power in the Federal Government and committed NBN Co to a universal FTTP model for its network rollout, powerful rival players such as Telstra, Optus, TPG and iiNet were willing to go along with and support the model.

Yes, as Hilmer points out, they did so because of the threat of regulation. However, they also did so because they were faced with an unstoppable economic force in the form of NBN Co, backed to the hilt — literally, to the tune of $40-odd billon — by the Federal Government’s overwhelming financial power.

Hilmer will be aware that Telstra is not afraid to throw billions of dollars of capital expenditure at a market in which its dominance is threatened. Telstra did precisely that in the late 1990’s when Optus attempted to overbuild its copper network with HFC cable. At the time, Telstra simply built its own HFC cable network in response, literally sending its trucks to roll out infrastructure down every street after Optus had been there. And we saw precisely the same situation when Hutchison’s 3G mobile infrastructure started challenging Telstra in the mid-2000’s. Again, Telstra threw cash at the situation in the form of its Next G mobile network.

Telstra could have done the same when Conroy and Prime Minister Kevin Rudd announced their NBN proposal in April 2009. Yet it did not, partially because of the threat of punitive regulation, but also because it knew it could not compete financially with the ultimate arbiter of power in Australia — the body which prints our money. And of course, lesser telcos such as Optus, TPG and iiNet also fell into line.

This situation remained static for as long as Labor remained in power and used that power to threaten a universal overbuild of Australia’s telecommunications networks. The only factor which caused it to change — and removed NBN Co’s natural monopoly status — was the Coalition’s radical watering down of the project. It was not the removal of NBN-related regulation which opened the doors of competition under our new Coalition Government (in fact, most of the NBN regulation remains intact). It was the Coalition’s decision to implement a less than perfect technical model for the NBN.

When the Coalition took power in September and switched NBN Co’s focus away from Labor’s FTTP model to technically inferior Fibre to the Node, Fibre to the Basement and HFC cable technologies, the local telecommunications industry took it as a clear signal that NBN Co no longer enjoyed natural monopoly status in the industry.

Before the election, there was no point trying to compete with NBN Co. As a Government Business Enterprise, the company had deeper pockets than anyone else and it planned to deploy the best possible technology almost universally around Australia. But after the election, and with that technological advantage removed, NBN Co became vulnerable again to market competition. If you could build a better broadband network in specific areas than its so-called ‘Multi-Technology Mix’ could offer — or, at least, if you could build something similar but get the rollout done faster — then you could compete. And that is precisely what TPG is threatening to do.

The key understanding here which Hilmer missed is the way that technological development changes markets.

Other sectors, such as electricity, gas and water provision, or even public roads, remain natural monopolies because new technologies have not been developed to challenge those monopolies. Sure, household solar power is chipping away at the edge of the energy utilities’ dominance, as are household rainwater tanks. But, at the moment, these can better be seen as incremental improvements to the overall efficiency of these natural monopolies rather than as fundamental challenges to their dominance.

Yet in the telecommunications arena, the fact remains that there is a gold standard which has not yet been widely implemented. Fibre to the Premises, as a technology, is the best on offer — the ultimate answer. If fibre has been laid all the way to a building, there will simply be no way for a competitor to challenge the dominance of that infrastructure. Nobody would bother. Yet, if fibre has not yet reached a building, the way is still open for infrastructure-based competition, as we saw very visibly demonstrated the moment the Coalition cancelled Labor’s fibre rollout.

What the Coalition is doing right now with respect to Labor’s National Broadband Network project is the equivalent of laying a water cable from a reservoir to a local neighbourhood well. Sure, that’s useful. But there will always be those who want to finish the rollout and bring pipes all the way to their house. Humanity, as a species, always desires progress. When Australia has an all-fibre national broadband network, much of that desire in the in the telco sector will dampen down. But until it does, people will always be looking for ways to complete the rollout, compete with it or even shut it down entirely. The same way they were when other fundamental infrastructure was still being built.

Many of us in Australia’s technology sector no longer refer to the Coalition’s broadband project as the “NBN”, because it’s not a uniform national network and it doesn’t represent the long-term future of Australian telecommunications. I would encourage Hilmer and other commentators to remember, when it comes to this project specifically, that it’s not just regulatory and economic factors which inherently influence the nature of competitive markets. Technological development does as well.

In his article, Hilmer does acknowledge technological change as this kind of force, speculating that new technologies will emerge and challenge platforms such as the NBN. But what he and other commentators often don’t recognise is that optic fibre has been the ultimate telecommunications platform for the past forty years; and that no technology exists which appears likely to supercede it. Eventually, over the next several decades, optic fibre will inevitably be deployed everywhere around Australia and will become a natural monopoly similar to that found in other industries. All we’re debating right now is the specific, nitty gritty details of how that inexorable outcome will occur.

52 COMMENTS

“..optic fibre has been the ultimate telecommunications platform for the past forty years; and that no technology exists which appears likely to supercede it.”

To me, this is the key point, and it’s a huge source of frustration that it isn’t more widely acknowledged in the mainstream media. What also drives me loopy is that people who oppose the NBN simultaneously say that there is no need for FTTH and that fibre will soon be superseded by another technology!

If we’re going to be technical (and, given the topic, there’s certainly a place for it) the speed of light is not relevant. Not only is it not relevant, it’s misleading.

The speed of light is measured in metres per second.

The speed of a data connection is in pieces of information per second, which is not the same.

Before you accuse me of pedantry, I’ll point out that RF waves through the air actually travel FASTER than they do through optic-fibre cable. This fact is used by the ill-informed proponents of wireless broadband when they seek to supplant fibre.

Speed isn’t as important as the infinite amount of capacity optic fibre offers through modulation, low impedance, etc… Speed comes from this but so can many other things. This is where the greatest advantage is.

You see the lobbyist (Foxtel) have the idea that will break their business model. For the past two years have been on the offensive trying to protect their cable network, Because the NBN will offer users a better choice

Imagine both Foxtel boss and News corp in a dark room patting a white cat. Malcom Turnbull enters the room and bosses slide a large black brief case, Malcom gets the liberal staff member to check the contents of the briefcase and notices a large sum of money

The bosses without revealing their faces say “You know want todo. Spend it on a ‘research’ trip and invite the media. then Destory the NBN!”

I get invited to do stuff with the ABC pretty much every week (usually radio, but there have been quite a few TV invitations as well). However, it is my standard practice to decline.

I do this for three reasons. Firstly, I hate it when publications have journalists interviewing journalists. Why not interview actual industry or domain experts? I’m not an expert in the NBN — I rely on the opinions and evidence of others. I have no telecommunications, economic, regulatory or legal qualifications. All I have, in fact, is an Arts degree. Then too, I only have so much finite time, and contributing to other media outlets for free is not a great use of my time.

I also have no wish to become a ‘media personality’ — one of the regular TV talking heads. I’ve seen what happens when you do get that kind of exposure, and I don’t particularly want it ;)

Lastly … I’m a writer. I’m terrible on the spot. I need to calmly think and collect my thoughts before I can speak. Otherwise I come across as a slow-thinking buffoon ;) I’m not witty, I’m not entertaining, and I can’t produce the sort of ‘thought bubbles’ which come across so well on air. I need context, length, detail and insight to make my thoughts clear.

I think what you have described here about yourself is of great importance.
While it is obvious to those of us who are regular readers that you do in fact know what you are talking about (I suspect from being heavily involved in the discussions for such a long time) that does not necessarily make for great viewing.

I continue to look forward to your articles because they are always well measured and the sheer amount of facts that you have to back them up is just astounding.

The natural monopoly was in the door to door connections. Thats it. Fibre from door to door is the end game scenario for decades to come, and once we reach that inevitability, its a simple case of upgrading the technology at just one end. There is no need for infrastructure rollout, only maintenence.

And thats where other natural monopolies have been justified – the infrastructure they are rolling out is one that has zero improvements IN THE ROLLED OUT INFRASTRUCTURE for a considerable time length. Any improvements didnt involve replacing that core part of the process.

FttN doesnt achieve that, so it gives leeway for competition to improve the connections that use copper up to that full fibre infrastructure. And thats where the likes of TPG have wriggle room – the last mile copper portion, and improving that.

Which is what the Liberals want.

They WANT competition to overbuild that last mile copper with fibre. They WANT the end product to be privately controlled. If nobody has been paying attention, what the Liberals want is for zero Government interference with any infrastructure.

Its the fundamental difference between the Liberals and Labor. Labor believes the Government should have a direct say in how necessary infrastructure is accessed, the Liberals feel the private sector can handle it well enough.

What is a natural monpopoly in Labor’s mind is just a commercial opportunity to the Liberals.

Sorry i just cant agree with your supportive comments for Hilmer’s article in respect to it being a regulation hurdle to overcome.

There have been multiple attempts by both sides in Government over the last 15 years that have encouraged private companies to upgrade aging and defective networks. Even ALP’s first attempt for the NBN was this approach. Encouragement in the form of grants and deregulation was offered. It wasn’t taken up by private entities because they didn’t need it to make a healthy profit for their shareholders. Existing infrastructure was ‘good enough’ .

Now we are at the point where it isn’t good enough, the mess the LNP has made out of the NBN has finally encouraged ISP’s to sink money into infrastructure. TPG is leading the pack but Telstra and Optus will be sure to follow. We will end up having 3 FTTB overbuilt networks + HFC overbuilt.

This government has made a mess, anyone who is still advocating, industry based competition, deregulation or cherry picking obviously doesn’t understand the last 15 years in the Telco industry.

Considering the technical issues NBN and previously Optus have alluded to with FTTB scenarios, the only overbuild could be FTTP within the MDU’s and we know the issues with MDU management – very unlikely considering cost and most of residents will be tied up on 2 year contracts. Unlikely to have anyone so foolhardy. So we will have far more than 3 networks of locked in mini monopolies with no reason or motivation to ever upgrade (More than 3 fibre providers in CBD’s).
HFC overbuild, NBN or Telstra will own the copper, no NBN fibre in HFC areas, only overbuild possible is to completely fibre including to the premises, competing with ADSL on copper and HFC. Too expensive for just a share of customers, once again won’t happen except in a very small number of high value cases.

I think when many people called the labor NBN a natural monopoly they were not using the correct terminology. Technically speaking Hilmer is correct, it’s not a natural monopoly because the regulation was necessary, but to the end user they just think “it’s more advantageous to society if it’s a monopoly, so it’s a natural monopoly,” which is obviously not what natural monopoly means.

No, the distinction comes when you consider it to be a national service. It is not economical to provide competing services at a national infrastructure level. Infrastructure competition is only viable at localised (cherry-picked) profitable areas. The policy decision then becomes do you treat the service as a national one and enforce the natural monopoly in the localised areas, or do you allow infrastructure competition where profitable and have the government support the areas where the market fails.

(side note: it is in this context that the above comment by Chris Gibbs is relevant to natural monopolies).

The Labor NBN assumed a monopoly and thereby used an internal cross-subsidy model to provide a national service with a user pays system. It would have been economically efficient and provided a platform for a knowledge-based industry to contribute more to our economy. The CBN seeks to reduce government intervention in the name of competition but will sacrifice the potential benefits a national network would have provided and will leave the government to prop up areas of market failure. This will either cost more money or be neglected.

“The policy decision then becomes do you treat the service as a national one and enforce the natural monopoly in the localised areas”
If you enforce it, it’s not a natural monopoly. The market doesn’t care about national vs local or civic services.

“The market doesn’t care about national vs local or civic services.”
The market doesn’t. But the country does. Well that’s arguable.
You don’t get to define the problem as being ‘within profitable areas’. Society exists outside of profitable areas. Quite a lot of it in fact.
The question at hand is how best to provide telecommunications for Australia. All of it.

There will always be some who miss out. This is about determining how far is reasonable. I think limiting the scope to purely “profitable” areas would not be reasonable.

“The question at hand is how best to provide telecommunications for Australia. All of it. ”
No it isn’t, the question is what a natural monopoly is. I don’t really know why you’re changing the subject.

You started out by saying: ‘I think when many people called the labor NBN a natural monopoly they were not using the correct terminology. Technically speaking Hilmer is correct, it’s not a natural monopoly because the regulation was necessary, but to the end user they just think “it’s more advantageous to society if it’s a monopoly, so it’s a natural monopoly,” which is obviously not what natural monopoly means.”

Wikipedia for convenience:
[William Baumol (1977) [3] provided the current formal definition of a natural monopoly where “[a]n industry in which multi-firm production is more costly than production by a monopoly” (p. 810).]

Technically speaking you are wrong. A natural monopoly is not defined by being devoid of regulation, nor devoid of subareas that are profitable to competition. A natural monopoly is an industry (as a whole) in which is it more economically efficient for one set of cost inputs to provide an outcome rather than multiple.

This is why I’m going on about the nation and telecommunication as a whole because the only technical argument you have is what constitutes the industry (and I don’t think you have much of a leg to stand on), The logical extension to the broader context of the NBN and whether it is a natural monopoly (the subject of this article), is what the government should do about it. Either regulate subsections where competition is possible, or provide for the areas where the market fails. And the market will fail because there are large parts of Australia where it is not profitable to have multiple providers because the cost inputs outweigh the loss of market share.

I think it’s reasonably clear that the NBN has very strong elements of natural monopoly, and endeavoring to chip away at this by focusing on the TPG scenario is really an exercise in semantics. The current copper network has never been duplicated on a national level, and last time I checked no other party was planning to invest ~$40 billion in modern telecommunications infrastructure. It is my understanding that to the point of a given ‘node’, fibre technologies will facilitate the provision of broadband services (notwithstanding unresolved questions about how HFC assets will be used)— your article doesn’t really acknowledge this, and while this is suboptimal to a FTTP solution it can reasonably be considered a partial step towards that outcome as broadly canvassed/noted by others. A good, and appropriate, lens for the NBN is that of a ‘local access network’ which will enable competition in downstream retail markets devoid of any vertically integrated service providers. While I can understand impatience about the pace of current developments, the disregard shown towards key policy considerations which accompany the telecommunications space here and in many countries overseas – namely equity and (almost) commerciality – is less understandable. The big picture trumps the little one, so to say. Somewhat unfortunately Renai the exact outcome you’re advocating for is not clear, meaning it can’t really be critiqued in terms of its practicality, feasibility and/or tradeoffs.

One other point, the article also neglects to mention the previous Labor government also protected competition in the upstream backhaul markets, with this effected through SoE requirements for all NBN traffic to be directed to the 121 nominated POIs. This is important because competition in this market has been fundamental in driving down prices paid by end users. If you lose this, the upstream market – and by extension those below – could become captive to monopoly providers, often renowned for their capacity to dial up prices, something which is not easily obscured through semantics.

The rationale for government to lay fibre to every urban door is to achieve universal availability of the only comms infrastructure capable of delivering ANY future speed demand without digging up and overbuilding. This goal (universal urban fibre), which is a great national good, cannot be delivered by the private sector.

If ubiquity is the endgame, along with removing all obstacles to 100% retail competition, then it is only commonsense to sign commercial agreements with Telstra (approved by 99.25% of its shareholders) and Optus to promptly migrate their customers onto fibre when available. Likewise, preventing fixed service competition.

Taxpayers must carry the can for the NBN build if its revenue is reduced, and this is why it is in the national interest to proceed with the project as designed, as a natural monopoly in fixed comms to urban premises.

The Labor NBN was a natural monopoly because it was a nation wide ubiquitous network that no one else would/could build. Even Telstra/Optus only managed ~30% coverage when they were doing HFC. The only other company to manage building a physical national network like that was the PMG/Telecom (at the time a government run company).

The Liberal NBN is not a natural monopoly as it is a collection of networks and isn’t a “true” national network in the same vein as the original NBN. This is what makes it subject to competition (as TPG is showing currently). Each separate section of their network is subject to competition due to both size (it’s much easier to build a state sized chunk rather than a national sized one) and lessor technology (FTTB is a notch up from FTTN for example).

What happens to the rest. ?
Eternal taxpayer subsidies in an age of the end of entitlement, does that also mean non profitable areas do not have access to modern communications.

Ideologues need to define their goals and the consequences, especially in a National Context where multi Billions absolutely dwarfing the cost of the FTTP NBN are to be spent on infrastructure supporting ever growing cities

Infrastructure competition can only exist in three ways:
1. If covering new users doesn’t require extra money for every user (mobile)
2. If adding more services helps by taking the load off existing services (HFC, mobile)
3. If infrastructure is tied to retailers and so acts as a proxy to retail competition (anything)

Neither party is opening up infrastructure competition. Although I will give the Libs some credit, their network won’t be a natural monopoly… it’ll be built over before it gets the opportunity.

Under the liberals Australia is not just open for business, Australia is for sale. Just as with the sale of Telstra the monthly charge for the already paid for copper connection tripled, so a privatised roll out of fibre services will cost the average person far more than a universal service… and roll out in country areas will take decades longer than otherwise. Thanks for nothing Turnbull…

Genuine question: Isn’t the natural monopoly the physical fibre itself, rather than the technology in cabinets used to transfer bits either way? Look at the competition that exploded once reasonably-priced access for ADSL become mandatory.

Shouldn’t it be the same for the NBN? Just worry about rolling out the fibre cables, then let businesses compete for profitable connections and the government services remote and regional areas to provide a guarantee of access.

I always was uncomfortable with Labor’s mandated monopoly, which felt like saying “you have to use Australia Post to deliver mail”. Shouldn’t we let anyone set up a courier service on the NBN “roads”?

Competition exploded in ADSL (let’s not argue over intricacies here)… but just remember that Telstra owned/had a monopoly on the infrastructure (copper) and the competition of which you speak, came at retail level…

Much like NBN MK1 proposed with FttP…

However IMO, NBN Mk1 was vastly superior in technology, ubiquity and all-round fairness, as NBNCo were to be wholesalers only, whereas Telstra were a vertically integrated company who wholesaled and retailed (to themselves). But most importantly, NBNCo Mk1 prised away the Telstra hands which were around Australia’s comms throat (remember Telstra refusing to switch on ADSL2 let alone wholesaling it, for ubiquity and competition)…

Unfortunately MT’s plan (now being instigated by ex-Telstra yes men) is inferior in all aspects, from performance, obsolescence through to again giving Telstra the upper hand …

But what I really find odd is that people claim gifting profitable areas to private companies with the tax payer footing the bill for unprofitable areas is not wastage or a tax payer impost… whilst simultaneously claiming that NBN Mk 1 which was to repay itself and give a more uniformed superior network to everyone, including giving private enterprise a great leg-up via the retailing side of such a network, is in fact the wastage and a tax payer impost?

@Stephen Bounds “Genuine question: Isn’t the natural monopoly the physical fibre itself, rather than the technology in cabinets used to transfer bits either way?”
Neither. Wikipedia has a fair explanation of natural monopolies. Natural monopoly is an economic term. It generally refers to an industry and is a description of one of the ways that industry can be configured to supply goods and/or services. In a natural monopoly, generally a single firm is best placed to provide goods and services at the lowest economic cost (resource overheads, if you like). Utilities are the classic example. In the utilities example, the market is largely fixed, the majority of people will have one and only one service, and therefore additional competing firms will only serve to reduce the available market on a per firm basis. Any reduction in price will be a boon to customers but will only result in a minimal increase in services required. However, each firm requires duplicate capital investment in order to reach and service the same set of customers thereby doubling the total costs (economically) of providing a fairly fixed level of service. This is the concept of a natural monopoly.

“Shouldn’t it be the same for the NBN?”
This is the debate that we should have had. If one agrees that telecommunications services should be provide nationally (as far as reasonably possible) then the most economically efficient way of providing them is via natural monopoly at an infrastructure level. This way you achieve the lowest input costs to the national service. You can then achieve healthy competition with end users at the retail level. Our electricity grid is supposed to work in the same way.

“Just worry about rolling out the fibre cables, then let businesses compete for profitable connections and the government services remote and regional areas to provide a guarantee of access.”
This would be the retail competition mentioned above which is exactly what the Labor NBN was aiming to achieve.

“I always was uncomfortable with Labor’s mandated monopoly, which felt like saying “you have to use Australia Post to deliver mail”. Shouldn’t we let anyone set up a courier service on the NBN “roads”?”
This would only be an apt analogy if each courier also had to build their own roads. A courier service is the retail provider here. The road network is the infrastructure equivalent. The courier service is only available where the road network extends. This is why we make the distinction between an infrastructure based natural monopoly and a vertically integrated retail monopoly.

It comes down to this: what level of telecommunications service do we as a society expect? How do we best provide it?

There are two main schools of thought.
1. Let the market provide services where it will do so and address (at a loss) the areas where the market fails.
2. Regulate the industry as a whole to provide the service at the overall lowest cost.

Your considerations should be:
Society’s expectation of service levels.
The costs to provide the level of service that society expects.
The incremental benefit to the economy by virtue of the additional services that can be provided by extending the enabling infrastructure.
The social benefits of including more people in the service.

This is where the debate should be. Do we allow the private market to address the profitable areas? What do we do where it is not profitable? Do we directly allocate taxpayer funds to subsidise non-profitable areas? Or do we say tough luck to those people? What’s the cost to society? What benefits are we foregoing?

We made the decision once to provide a telephone service nationally. The time has come for telecommunications services more generally (not just broadband).

While I agree with what you’re saying in general, I think there is still a natural monopoly with this. Comm’s have always lent themselves to being a natural monopoly, simply because of the sheer size of covering 100%* of the population.

Its inevitable that in the near future, the entire run from the exchange to the property will be fibre for most people, and in the not too distant future after that, for everybody. The logistics of replacing the entire copper network are too great for one company alone, and if you spread the cost across multiple ISP’s the duplication of effort means unnecessary cost.

Its cheaper to control the build through a central point, which means it has the hallmarks of a natural monopoly. In decades past we had regional electicity companies rather than open slather, because it made sense to do the rollout once in an area. We had one phone company for the same reason.

The way I look at it, the fibre lines themselves is a natural monopoly. The DSLAMS at the exchange may or may not be, depending on their upgrade path in the future. If you can hook multiple DSLAMS into the fibre network, then its not a natual monopoly, if you cant then it is.

As a separate example, Telstra and Optus famously chased each down the streets with HFC. Wouldnt it have been cheaper to jointly roll the lines out, then compete at the retail level? For what they spent combined, they could have covered a far greater portion of the community. Thats a natural monopoly, being spoiled by self interest. Understandably, but a shame nonetheless.

I was trying to provide an overview of the situation without advocating a particular position; as the original question was regarding definitions I think I provided a clear one and also linked it to the NBN situation.

(FWIW, we are in agreement. I’ve seen enough evidence of the market failing, and of the economic potential that could be underpinned by standard, ubiquitous fibre.)

Yeah, I didnt come across very clearly myself. Was mostly saying that from an ecomonic point of view, I think there is still a natural monopoly situation with fibre.

Where there is no benefit to multiple companies rolling out the same infrastructure, then its a monopoly, and its a first in wins situation.

Which is how FttH has to work if FttN is the base option. Second company to build can only expect 50% of the customers at best, and because of the labor costs it just wont be worth it. So you get one line in, and tied to one service until its regulated that it needs to be made available to competitors at the wholesale level.

Personally I wonder how long it will be until its worth the first company building over FttN. FttN will be enough for most people for a good while, so if there is no ROI on the investment, why will they build?

I totally agree with what you’re saying Renai, but you’re missing one key fact.

TPG are not proposing to build FTTP. Not at all. They are NOT proposing to deliver a superior technology to cherry picked customers.

They are proposing FTTB, to compete with NBN’s FTTB. Like for like. So this key fact actually debunks your entire debate, which although is still true, it just doesn’t apply to the example you’re using with TPG.

So although the NBN choosing FTTB and FTTN does open the market for other ISP’s to compete by building superior (FTTP) infrastructure, as far as I know no-one is talking about doing this.

The NBN is a natural Monopoly, or should I say was. It was at the time, the most efficient delivery mechanism possible for a FTTH roll out, hence why it was run by a single firm.

There’s no doubting that the large capital costs of this project aren’t feasible for any other company to replicate the original NBN plan of FTTH. The market size is relatively small compared to the investment required, hence we’ve seen nothing happen in the past fifteen years giving the NBN the title (if it continued) of first supplier to the market.

This in my view is what a “natural monopoly” is, it eventually may shift to a “monopoly” depending on your definition.

The mixed delivery model that’s currently being proposed will entice competition into the market place because it allows providers to target areas with minimal capital investment and a large return due to the volume of subscribers available.

On another note, I can’t wait to see what this new technology is that replaces fibre ;)

“The argument made by respected competition expert, academic and executive Fred Hilmer several weeks ago that the National Broadband Network is not a “natural monopoly” is somewhat convincing, but ultimately falls short by failing to acknowledge specific factors relevant to competition in the telecommunications sector.”

“Hilmer’s article published in the Financial Review newspaper on 28 April (paywalled) is one of the first thinkpieces I’ve seen published in Australia which successfully challenges this idea.”

Please forgive me but exactly what is it you are trying to say here and what is your position/opinion?

Renai,good to see some commentary on this topic. To try and confirm what I think your saying….is it that it is only the Coalition’s lesser technical solution which has reduced the Natural Monopoly “attributes” of the NBN and therefore opened the door for TPG to compete.

If that is your premise, then you have used some mighty assumptions to get there. It could well be that the change of government has tipped the balance in favour of other telcos trying to compete. I do say “trying” because it seems that TPG has only dipped a toe in the water to test the market and regulatory response, and other telcos are watching too, to also learn from it.

But the change of government has brought a number of changes beyond the myopic technical solution change your article relies upon.

One of these changes is the likelihood of increased policy consistency and improved business investment confidence. Seven months in we cant tell how this will play out with the new government. But what we do know is that the previous government was very quick to shut down business investment without much consideration for the businesses themselves or the private capital at risk.

Cattle exports and trawlers are two examples of legal business operations that were reacted against. I also recall the Vodaphone CEO getting an absolute bucketing from Conroy for daring to raise a reasonable question for industry debate regarding the relevance of Telstra’s fixed line CSO payments in a world where fixed copper lines don’t define whether someone has comms like they did 2 or 3 decades ago. It was nothing short of political bullying behaviour in my view.

It may have taken someone like Conroy to push through the NBN agenda in the first place, but the previous government’s track record was very strong in responding with regulatory changes in a very brutal way. It is unlikely that the new government will behave in such a way. But in any case, from a TPG and its competitors’ perspective, it is worth testing this. And this is what they are doing.

Your argument that this is all and only about the technology fails to take this into account.

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Written by Delimiter Publisher Renai LeMay, The Frustrated State is the first in-depth book examining of how Australia’s political sector is systematically mismanaging technological change and crushing hopes that our nation will ever take its rightful place globally as a digital powerhouse and home of innovation.

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